Artificial Pricing is a Major Challenge in Nigeria’s Property Market, Says Ogunniran
Mr. Hakeem Ogunniran, a prominent operator in Nigeria’s real estate sector, who built and sold several homes for UPDC, believes the nation’s property market should be rid of artificial pricing. The market is still good to invest in, he says. Bennett Oghifo reports
“In a recessionary economy, it is difficult to preach real estate investment because asset conversion period is longer, the economy is sluggish and there is so much uncertainty. People do not want to take real estate investment when there is so much uncertainty because for most people, real estate investment is probably the single largest investment they will do in their lifetime. You don’t want to make such investment when the environment is not certain. But if you look very well, you see that it is probably the best time to do that investment.”
These were the opening thoughts of Mr. Hakeem Ogunniran, the Managing Director of UPDC, a foremost real estate company in the country. He discussed the ‘Challenges and Opportunities in Real Estate’, at a forum of the Nigeria-German Business Association (NGBA), in Lagos, recently.
Ogunniran said it costs a lot of money to invest in real estate. “Even to buy a parcel of land in Ikoyi now is between N350,000 and N420,000 per square metre, which I think is way too high; the prices are too artificial, and the simple test is that when you are doing your project, you can just look at you land cost as a percentage of your total development cost. Best practice, it should be between 5 and 7 per cent but in Nigeria it is as high as 25 per cent- that is a major problem.”
He said unlike what obtains in the stock market, the waiting period for real estate was much longer and so investors needed to have some staying power. This is sometimes lengthened further by the documentation process.
He said real estate investment was better because of capital appreciation, which could take about two or more years. It is also a source of reliable income, particularly if the investment includes Real Estate Investment Trust (RIET).
According to Ogunniran, the greatest challenge of real estate in Nigeria was uncertainty of title. “I always tell my head of legal department at the office that if you want to buy a parcel of land and the title is very clean, I’m always afraid to touch it because there is not title that does not have an issue.”
Another situation, he said was that in the last seven to eight years, many developers have emerged and these are basically doing the same thing. “Unfortunately also, all of us are thinking for the customer, so when the dynamics of the industry was changing we didn’t understand.”
He gave an example, “18 months ago we decided to enter the mid-term market, because the luxury market became challenged, retail had issues, commercial also.
“In Lagos, by June this year, 80,000sqms of Grade A offices are coming to the market on Alfred Rewane Road (former Kingsway Road), Ozumba Mbadiwe Road, and in a few streets in Victoria Island. Now the economy is not expanding, new industries are not coming, so we are all just busy marketing the same set of clients.
“What happens is that people approach you tenant and they offer them all sorts of freebees to relocate.”
This became an avenue for them to become more rigorous in our ventures, he said “So, we took a decision to look at the midterm market and then we value-engineer the design, This time around we really decided to go to the market, created our target group and decided to speak to them.”
The company tried to understand from them what they consider as value. They were surprised that 90 per cent of them said they do not need swimming pool, tennis court; they can use those at the club house in town. They would rather have a crèche, a beautiful playground for children.
He said it was becoming clear in the market that having facilities like gyms, swimming pool, tennis court, among others, is just thinking for the customer.
Ogunniran then advised real estate developers to explore the fine points of joint ventures to boost their business. He also advised on development of Real Estate Investment Trust (REIT) market.